Thursday, September 24, 2009

Advice 2009: Financial Planners vs. Economists – Part II

By Paul Mladjenovic. September 24, 2009.
Copyright 2009. Paul Mladjenovic. All rights reserved.

In the prior segment (part I) of this “mini-series”, I highlight the differences between the advice from financial planners and the opposing “advice” given by some so-called “economists” (predominately from the Keynesian school of economics). As a brief recap of the prior essay, I point out two divergent points of view:

Advice by Financial Planners to individuals: “Do not spend more than you take in”

Advice to nation from Keynesian economists: “Spend and borrow! Deficits are OK”

I find that an interesting (and disturbing) dichotomy. What are individuals but parts of the whole (nation). Why is financial responsibility good advice for the parts but not for the whole? Why are “financial deficits” bad for individuals yet good for the entire nation (read that “government”)? What’s good for all the “parts” is indeed good for the “whole”. Anyway, let’s move on to the second financial concept:


As I have taught in my financial seminars for years (, you should save (where possible) a portion of your income (inflow) and put that sum somewhere safe and accessible. Keep in mind that “saving” and “investing” are two distinctly different activities so do not confuse them.

In good times, people should have at least two months worth of gross living expenses in a savings account. It can be a FDIC-insured bank account or a secure money market fund. In bad or uncertain times, that amount ought to be as high as six months worth.

Of course, financial planners may differ as to how much and that’s fine. The main point is that the overwhelming majority of financial planners recommend that you should have savings in your over-all financial picture (along with investments). Savings act as a “rainy day” fund or an “emergency” fund. You should always have money to fall back on when unexpected expenses arise or when you have events such as losing your primary source of income. Doesn’t it make obvious sense? Not to some economists…

It is maddening to hear or read some highly visible “economist” telling some congressional committee or Radio/TV audience that “America needs to stimulate demand…we need to spend more to get the economy moving”. More times than not, their next point is “If consumers are not spending then the government should be doing more spending to stimulate the economy”. Of course, spending, debt and government deficits are the “three stooges” of national finance!

Although Americans lately are saving more, they still need to increase their savings. After years of over-spending, America’s over-indebted consumers are finally learning the virtue of saving money and this should be applauded. They should ignore the calls to “keep spending and spending”. The politicians and bureaucrats should ignore these (primarily) Keynesian economists that are issuing this claptrap. They should understand that expanding savings leads to capital formation which in turn helps true economic recovery.

Unfortunately (and tragically), it is an ingrained feature of politicians and bureaucrats to spend and spend and spend and to keep dissipating America’s resources. While Americans are (correctly) being more frugal, our government (federal, state and local) are spending at alarmingly high (record) levels. The government’s massive debt and mind-boggling trillion-dollar will hurt us very badly. We need to prepare our finances (such as at for the greater debacles that are yet to come because our irresponsible government is listening to the advice of alleged “economists” instead of financial wisdom that has served us for centuries.


Friday, September 18, 2009

Advice 2009: Financial Planners vs. Economists – Part I

By Paul Mladjenovic. September 18, 2009.
Copyright 2009. Paul Mladjenovic. All rights reserved.

I first got my Certified Financial Planner (CFP ®) practitioner designation in 1985 and I first started consulting on financial planning issues in a part-time (now full-time) business in March 1981. Since then, I have had the opportunity to watch major changes and trends unfold in financial planning and investing the economy for what is now over 28 years.

Of course, much of this change occurs as responses to changes in the general society as we are affected by economic, financial, political and social trends both big and small. Some ideas have not changed. Think about the following idea:


Isn’t that a simple yet obvious financial idea? It spans 2,000+ years of human experience! What sane person would disagree with that? If you have income (or cash inflow) of $X amount per month then it is an obviously good idea to make sure your expenses (or cash outflow) is equal to or (hopefully) less than $X. Is this not a timeless and obvious piece of financial wisdom that anyone would acknowledge and agree with without hesitation?

Granted, it is not always easy. Sometimes unexpected financial events occur such as a major illness or the loss of a job. That is understandable. However, we strive to have inflow exceed outflow as a desirable and achievable goal. After all, if we spend more than we take in then the shortfall must be covered in some way. This is why we need savings. In recent years, we covered that shortfall differently.

The usual way to cover that shortfall is DEBT.

As the debt grows, the financial balance of “income meeting or exceeding expenses” gets screwed up and we get into financial difficulty. That, of course, can result in economic pain and bankruptcy. It doesn’t take a “financial expert” to see or understand this.

But… is there anyone out there that would purposely disagree with this idea? I mean, is there anyone out there that would intentionally decide that over-spending is a worthy idea? Who would knowingly contradict ancient wisdom and say “I disagree…we should spend more than we take in! Getting into greater debt is a good idea!” As a CFP practitioner, I would obviously reject such a bad idea. Who would say such a thing?!

Enter stage left…a mainstream “economist”.

Now, I won’t mention names here (I am tempted). I am not here to mock a person…I am here to criticize a stupid and dangerous economic idea. I want you to recognize economic stupidity when you hear or read it. Lately, I have read such an idea as espoused by several very prominent “economists” (I put that in quotes because I have a tough time believing a REAL economist would say such things and actually mean it).

Now keep in mind that these “economists” are not giving this dumb advice to a particular private citizen or organization (I hope not!). They are giving this unsolicited “advice” to us collectively as a nation (through the government and the media). These particular “economists” are adherents to the general economic ideas of John Maynard Keynes. “Keynesian Economics” has as a central idea that government should spend and spend and balloon its debt to help “stimulate” the economy. The goal is to get it out of its doldrums and “back on track”. This is quackery.

It doesn’t occur to these “economists” that such an event simply postpones today’s difficulties and ultimately creates greater difficulties later on. Government debt is a forced burden on society and the politicians and bureaucrats merely take a big financial problem today and make it a bigger financial problem tomorrow. The government’s massive trillion-dollar spending binge will cost us dearly!

In my financial & investing seminars (, I talk to my students about how to manage their money in today’s troubling economy given the economic quackery that we are forced to deal with. Greater economic difficulties are on the way and we need to prepare ourselves. We have to stay a step ahead. Financial changes are here and we need to prepare! Financial security will not be easy.

Hopefully, America’s personal financial planners will help our populace individually offset the great harm that is being done to them collectively as a nation. The irony is very disturbing to me: Our troubling economic conditions have arisen chiefly due to bad advice given to our nation from eloquent quacks that the media presents as “prominent economists”. More on this in a future essay.